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Programmatic CDM Risk Assessment

The Carbon Rating Agency (CRA) has refined its traditional rating methodology to take into account the additional complexities and risks associated with programmatic CDM (pCDM). CRA has looked beyond the existing regulatory and design issues and explains the key implementation risks that will need to be properly understood in order for this promising mechanism to achieve its growth potential.

The Potential Role of pCDM

Programmatic CDM is being promoted as an answer to a number of concerns about traditional CDM projects. Its flexible structure should improve regional distribution of the mechanism; give end-use energy efficiency schemes greater access to carbon finance; reduce transaction costs; remove barriers for geographically-diverse, small-scale emission reduction schemes and promote the participation of sectors that have so far been under-represented in the carbon market.

The major reason for this slow uptake are numerous regulatory and design issues that have undermined market interest in pursuing this mechanism. Efforts to revise the pCDM’s regulatory framework are currently underway and it is hoped that the necessary amendments will soon be resolved by the CDM EB.

The Implementation Risks Faced by pCDM

Assuming that the Program of Activities (PoAs) regulations are successfully revised, the existing market interest in developing pCDM should be translated to successful implementation of numerous PoAs. However, this will only be achieved if these simplifications to the regulatory framework are accompanied by a greater understanding of the risks attached to designing, financing and coordinating a PoA. The key risk areas as identified by the Carbon Rating Agency are the financial structure of the PoA, the role of the Coordinating Entity and the policy or regulation that is being implemented. In addition, to these three specific pCDM risks, the usual risks that face traditional CDM projects need also to be considered. The pCDM Risk Assessment will include the technology being utilised, the market within which the scheme will operate and the implementation of the PoAs.

The Role of CRA Within pCDM

The CRA’s approach to evaluating and managing risks in CDM-PoAs (CPAs) focuses on the performance drivers and the regulatory framework specific to pCDM. The CRA is set to promote best practice amongst pCDM’s investors and developers by providing an independent opinion on a PoA’s potential and of CPAs at the crucial design stages.

CRA offers a unique risk management service to support pCDM development by offering risk assessment and evaluation services on PoA’s and CPA’s.

Please contact us at info@carbonratingsagency.com for more specific information and fees structure.